Business | Schumpeter

The other demographic dividend

Emerging markets are teeming with young entrepreneurs

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GLOBALS is one of those fast-growing Indian IT companies that Westerners simultaneously admire and fear. Founded in 2000, it already has offices in 11 countries and customers around the world. The chairman and chief executive, Suhas Gopinath, is just 24 years old. Most of his employees are also in their mid-twenties.

Mr Gopinath is an illustration of a striking business revolution. Emerging-world businesses have traditionally been obsessed with seniority. Ambitious youngsters in countries like India have been equally obsessed with job security. Well-paying jobs, preferably with multinational firms, are the key to success in the marriage market. But this is changing rapidly.

Nandan Nilekani, one of the founders of Infosys, reports that he now comes across mould-breaking young leaders wherever he goes in India. They are even to be found in big companies such as ICICI, a leading bank, Hindustan Unilever, a consumer-goods giant, and Comat Technologies, which provides information to rural Indians. Vivek Wadhwa, an American academic who studies entrepreneurship, says he is inundated with requests for meetings whenever he visits the emerging world. He met 125 fledgling entrepreneurs during a recent trip to New Delhi and will talk to as many as he can manage in Beijing soon.

The rise of young entrepreneurs is extending the meaning of the demographic dividend. Demographers have often noted that most of the emerging world will stay young while the rich world ages. In 2020 the median age in India will be 28, compared with 38 in America, 45 in western Europe and 49 in Japan. But the dividend will be paid not just in the form of more favourable dependency ratios but also in a more entrepreneurial business culture. Young people are innately more inclined to overthrow the existing order than are their elders. This predisposition is being reinforced by two big changes in the emerging world.

The first is the information-technology revolution. The Boston Consulting Group calculates that there are already about 610m internet users in the BRICI countries (Brazil, Russia, India, China and Indonesia). BCG predicts that this number will nearly double by 2015. And in one respect many consumers in emerging markets are leapfrogging over their Western peers. They are much more likely to access the internet via mobile devices (which are ubiquitous in the emerging world) rather than PCs. That gives local entrepreneurs an advantage, says Rob Salkowitz, the author of “Young World Rising”. Whereas Western companies are hampered by legacy systems and legacy mindsets, they can build their companies around the coming technology.

The second is a pro-entrepreneurial revolution. Global institutions such as the World Bank and the World Economic Forum have helped to popularise entrepreneurialism. Mr Gopinath was encouraged to stick to his guns as an entrepreneur when the WEF elected him its youngest ever Young Leader. Several big companies have also encouraged the trend. Microsoft is helping local businesses and NGOs improve information-technology infrastructure. Goldman Sachs is spending $100m on female entrepreneurs, many of them in emerging markets.

But even more important than these external nudges are internal changes. The rise of a cohort of highly successful local start-ups such as India's Infosys, Argentina's Globant and Ghana's SOFTtribe has had a dramatic effect on thinking across the region. These companies have demonstrated that young entrepreneurs can succeed mightily: the seven founders of Infosys were in their 20s when they set the company up. They have also created a group of middle-class people who have the wherewithal to bankroll risk: parents who have made money in Infosys or young people who decide to set up on their own after a few fat years in the corporate world.

Great expectations

These young entrepreneurs have already begun to shape some markets such as mobile video games and online karaoke. They have also demonstrated an impressive ability to identify gaps in other markets. Three years ago Bright Simons, a young Ghanaian, came up with an ingenious idea for dealing with the epidemic of counterfeit drugs. He asked drug producers to tag their products with unique bar codes. Consumers can then use their mobile phones to send a copy of the bar code to the producers to make sure the drugs are authentic. Kamal Quadir turned his back on a career on Wall Street in order to found CellBazaar, which provides the 20m subscribers to Bangladesh's GrameenPhone with a virtual marketplace where they can sell things as humble as sacks of potatoes.

This argument needs to be qualified. China, the emerging world's most powerful engine, is ageing rapidly, thanks to the one-child policy: by 2020 the average age in China will be 37, almost the same as in America. Young entrepreneurs have plenty of obstacles to mount. In Nigeria the fashion for cyber-crime has all but killed legitimate cyber-business: PayPal will not accept payments from people with a Nigerian internet address. In Latin America many young entrepreneurs operate in an informal economy where innovation is rare and capital hard to come by.

Yet entrepreneurial energies are moving eastward. The fact that many rich-world companies have responded to the economic slump by stopping hiring younger workers will only accelerate the shift. One of the most popular films in America at the moment is “The Social Network”, about a group of young Harvard students who founded one of the world's fastest-growing companies, Facebook. The next Facebook is increasingly likely to be founded in India or Indonesia rather than middle-aged America or doddery old Europe.


Economist.com/blogs/schumpeter

This article appeared in the Business section of the print edition under the headline "The other demographic dividend"

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